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SaaS is a Business Model

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  rev. 25/04/2008        

By Brian Duckering, Sr. Director of Products and Alliances at AppStream

The allure of the service-based software model has been around for a very long time. And in spite of all the exciting marketing hype that comes along with each promising new acronym (remember ASP?), there have always been pitfalls, barriers, costs and challenges. Software as a Service, or SaaS, is the latest approach to an old problem, and the pattern holds true again. After all, if there are such great benefits to offering your software as a service, why isn't everyone doing it?

The traditional qualification for a SaaS application is that it is web-native. It had to be. This was the only way the customer could simply log onto a web site, subscribe, and start using the software. There is no need to download, install, configure, manage or update, as you would with software that you own. This model gives the software vendors (ISVs) many advantages as well. The software is installed in only one controlled location, instead of out on thousands of PCs. Version control is guaranteed. And absolute access control means that there is no piracy or lost revenues. In fact, the available revenue opportunities can put a smile on both customer and vendor alike. What ISV wouldn't want a recurring stream of revenue from a single sale? And customers are often more willing (and more able) to pay a little bit each month instead of a lot up front, even if over time they will be paying many times more to the ISV for the privilege.

SaaS Software Model

New software companies have an advantage here because, without an investment in legacy software and technology, they can choose today how to architect their software. The majority of new software companies are developing to this model from the outset, and SaaS hosting providers, like OpSource, are making it easy to reliably take these products to the masses, in case hosting is not their area of expertise.

But this isn't the simple or correct approach for all software companies. The vast majority of productivity and professional applications require that execution takes place on the end user's machine for satisfactory graphical performance and user interactivity. Even the successful SaaS companies are responding to customer demands for offline use and a richer interface by producing installable client components. And although a web-native version of some existing on-premise software could produce satisfactory results, the obstacles of cost, resources and time to recode for this purpose are all too often insurmountable. So the SaaS software model is simply not an option for most software companies today.

SaaS Business Model

But what about the SaaS business model? If the attraction of SaaS software is the simplicity of access and management, and the flexibility of alternate revenue models, then consider viewing SaaS more as a business model than as a specification for software. With this business-oriented view, let's revisit the important characteristics of such a business.

Subscription or pay-per-use revenue
Instant access to your software from anywhere
No download or installation requirement
Central management for user access and version control

So how do on-premise software companies move to a SaaS business model without risking their entire business? What about older applications that will never be web-native? Is SaaS really just for new software companies and those with a lot of discretionary cash?

If these objectives are truly achievable without the requirement of web-native software, then it may be time for all ISVs to reconsider their options. Using technology that was not available ten years ago, SaaS is now within reach of almost every ISV out there. And as OpSource well knows, companies today, with only on-premise software, are already enjoying membership in the exclusive SaaS community. Because alongside the applications they host are applications that are streamed to end-user machines, on-demand.

Application Streaming

Streaming is the key. Although application streaming has been around for a while, aiding corporate IT departments in the distribution and management of their licensed and proprietary software, the last few years have seen a migration of this technology to the ISVs, allowing them to directly distribute and control their own software. This transition started with specialty software in the finance and mortgage industries, where proprietary software had to be distributed to thousands of agents around the country, outside the managed enterprise. Required frequent updates and the need for instant access made physical distribution on disks impractical. And server-based computing options could be prohibitively expensive to set up and maintain for large scale deployments. Today, streaming has become the new SaaS enabling technology, allowing ISVs, and even service providers, to instantly make software available in the SaaS mode, with zero recoding!

Streaming is fundamentally a delivery mechanism, where the bits of an application are delivered to the end-user machine on an as-needed basis. The trick of streaming is to fool the host system into thinking that the application is fully installed, so that the missing bits are not missed by the operating system or the end user. Just like a video, where the user can start viewing with only a small portion streamed, so too a user can be productive very quickly, with only a very little bit of the application. This is called the startup block. Once the user is working, the rest can come only as additional application functionality is accessed, or all at once in the background, allowing the user to disconnect from the network with fully functional software.

There are three components that make this work: a back-end server, to manage users, access rules, application versions, etc.; a front-end server, for user authentication and streaming the applications to the users; and a client-side agent, to enable and control streaming and access on the user's system. Using standard http protocol and multiple distributed front-end servers, this system can be efficiently deployed for global access and simple management.

To make this all a bit clearer, I'll take a moment to explore exactly how streaming accomplishes each of the four SaaS characteristics mentioned above.

1. Subscription revenue

In order for subscription or pay-per-use to work, the vendor must have the ability to control access to and “time out” software on a remote machine, according to some payment record in a database. With the streaming server integrated into an e-commerce web portal, the paid usage period is added to the database and is included with the application when it streams to the customer. The client then takes over control and allows program execution until the expiration, at which time the application is completely uninstalled. This works even if the customer has purchased offline capability, as a connection to the server is not required for enforcement. If the customer extends their subscription before expiration, the application can continue functioning without interruption. Messages can be added to “prompt” the user to extend their subscription.

2. Instant Access.

This is perhaps the most obvious objective of a SaaS business, because for an application designed for SaaS, there may only be a web interface, with no need to deliver installable code. For on-premise software to behave in the same manner, the initial delivery must be immediate, and as transparent as possible to the end user. The only way to do this is to stream the application, providing instant productivity, with minimal code actually delivered to the user. All of the streamed bits are cached so that it only needs to be streamed once, and depending on settings, the user may only need to stream the bits to support accessed functionality, saving tremendously on bandwidth. The cached bits remain on the customer's system for subsequent executions, with no additional streaming required.

3. No download or installation.

This may be an obvious requirement if the previous step is successful, but here, the benefits go far beyond instant gratification. It is often the installation and configuration process that requires so much time from IT in enterprises and consumers at home. This is also where about 90% of support calls originate. Imagine being able to reduce your support costs that dramatically, and have happier customers at the same time. By having your software pre-configured to just stream and run when an icon is clicked, the customer is no longer required to have the knowledge or expertise ordinarily required for desktop and application management.

4. Central management.

Simply put, when you can easily control who has access to your software, what version they are allowed to use, and for exactly how long it is available to them, the revenue streams can become far more flexible. With streaming, note that any streamed software only works for the person who has been granted access, and expirations may be applied at the time of delivery. This makes it easy to have fully functional trial software that automatically uninstalls itself at the end of the trial. It also means that arranging a full-fledged subscription program, or even pay-per-use is as easy to accomplish as a perpetual license. Streaming even provides full tracking feedback on the usage of applications, highly valuable information for any ISV that is generally not available outside of the SaaS model.

Software vendors using streaming today have seen as much as a 30% increase in sales for streamed products over those available only by download. And with no client-side installation required, support costs have dropped significantly. ISVs can host their own streaming servers, or work with service providers like OpSource, who do this for a living, to handle this part, freeing the ISV to focus on product development.

SaaS offerings may also benefit from streaming, by delivering any client-side components. Mobile customers expect to continue being productive even when disconnected from the network. And products like WebEx and LiveMeeting could provide a better end-user experience for first use by streaming the client software to meeting participants.

SaaS, as a business model, is a far more achievable goal for most software companies than SaaS as a software model, and streaming is the technology that makes it possible for virtually any ISV to become a SaaS company, today, with the software they already have.

About AppStream

AppStream, Inc. is a leader in on-demand application deployment and management, offering customers the most flexible application management solutions at the most affordable price, with the fastest implementation time. AppStream enables a Software as a Service (SaaS) business model by transforming any Windows®-compatible software application into a service over the internet. AppStream does this through patented on-demand technologies and partnerships with industry leaders. AppStream is headquartered in Palo Alto, CA with offices in Europe, Asia, and the Americas. For more information, please visit www.appstream.comp.

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